Businesses Take a Cautious Approach to Disclosures Using Social Media

Richard Brian/ReutersReed Hastings, chief of Netflix, used Facebook to brag about his company.

Zynga’s latest quarterly earnings report, released on Wednesday, came in the typical format and was accompanied with the usual financial tables investors expect.

But the social gaming company that counts FarmVille among its games included a new addition: a 204-word paragraph encouraging investors to check its corporate blog and Facebook and Twitter pages for regular news updates.

Although social networks have proliferated for years and the public more readily turns to Twitter than the S.E.C.’s Edgar Web portal for updates, the agency just a few months ago was still evaluating whether using newer outlets would violate its rules.

Even with the updated guidelines, uncertainty over what exactly the commission will allow has meant that many companies, and their legal teams, are playing it safe this earnings season.

“Right now it’s like the Wild West,” said Broc Romanek, editor of TheCorporateCounsel.net, a Web site that focuses on S.E.C. rules and regulations. “The S.E.C.’s guidance is definitely going to need to be further refined.”

For instance, when General Electricreleased its earnings last Friday, the company mentioned its Twitter and Facebook accounts for the first time, noting that they “contain a significant amount of information about G.E., including financial and other information for investors.” A quick check showed that G.E. has at least 10 different Facebook pages and 10 different Twitter feeds. A company spokesman, Seth Martin, however, said the conglomerate would continue to rely on news releases to communicate material information.

“While we currently have no plans to disseminate material information using social media, we will comply with S.E.C. guidance as it evolves,” Mr. Martin said.
Others may simply be hesitant to leap into the world of 140-character messages out of fear of security. Earlier this week, the Dow Jones industrial average briefly plunged 150 points after hackers gained control of The Associated Press’s Twitter feed and falsely reported explosions at the White House. A similar fake report on a company stock could easily cost investors billions in a matter of seconds.

Not long ago, regulators regarded social media sites with skepticism.

Until now, information that has the potential to affect a company’s stock price had for the most part been relegated to the bureaucratic sounding form 8-K, the S.E.C.’s document of choice.

Last year, the S.E.C. warned Netflix that it might file civil claims after its chief executive, Reed Hastings, bragged about subscriber numbers on his Facebook page. But after the ensuing reaction against the agency’s view, the S.E.C. gave in a little, saying this month that social networks were acceptable news outlets — as long as shareholders knew which to check. The new rules update the S.E.C.’s Regulation Fair Disclosure, which requires companies to publish material information to all investors at the same time.

A spokesman for the agency, John Nester, argued that the new guidance on social media should not be too confusing, given how quickly companies adopted a 2008 rule that allowed the use of corporate Web sites in addition to S.E.C. filings.

“Companies were able to figure out how to use our guidance to disclose information on their Web sites, so there’s no reason they shouldn’t be able to do the same with social media,” he said in a statement.

In practice, corporations are experimenting with a wide variety of policies. In its earnings release last week, AutoNation listed five different places where investors could find information about the company, including the Facebook and Twitter feeds of its chief executive, Mike Jackson.

Netflix itself listed in a securities filing five different places where investors should check regularly for more information. Among them: its corporate blog and Twitter feed, as well as the chief executive’s personal Facebook page.

Glen Ponczak, a vice president for investor relations at the manufacturer Johnson Controls, said that the company had started posting information on Twitter several weeks before the S.E.C. outlined its new policy on social media, but that it was very much in experimental mode. On Twitter, the company posted a link to its earnings call, but did not post any updates from the earnings call.

“We’re starting off slow and learning what we need to do,” Mr. Ponczak said. At least for now, he added, “it will not be our primary disclosure point.”

Lawyers who focus on disclosure issues expect a bit of experimentation, and heavier use by technology companies whose business models are already heavily dependent on social media.

“The S.E.C. is not going to let companies be sloppy,” Thomas A. Sporkin, a former S.E.C. enforcement official and now a partner at Buckley Sandler, said. “The investing public needs to know where to go for disclosures, and the division of enforcement is going to be vigilant on this.”

And for some legal teams, the old formats of S.E.C. filings will still likely be the preferred method of disseminating financial news.

“Most companies are going to use social media as a supplement,” said Amy Goodman, a partner and co-chairwoman of the securities regulation and corporate practice group at the law firm Gibson Dunn & Crutcher.